The Three Great Myths of Business
Ray Smilor, President, Beyster Institute for Entrepreneurial Employee Ownership
It’s easy for an entrepreneur to kill any chance of raising money for his or her venture. Just fall into the trap of arguing one of the three great myths of business. And if an entrepreneur manages to present all three myths to a potential investor, then he or she hits the trifecta of business breakdown. The result will be that the entrepreneur looks, at best, unsophisticated and uniformed and, at worst, silly and incompetent.
I see these myths crop up in business plans, in formal presentations to investors and in informal discussions among fellow entrepreneurs. They are seductive because they imply huge market opportunity, ease of access to customers, and pent-up demand for the product or service. But they’re wrong.
The 1% myth argues that all an entrepreneur needs to have a successful business is to gain 1% of the market. If an entrepreneur maintains this, then he or she really knows nothing about how markets actually work. The myth is attractive because it appears so easy to accomplish. The thinking usually goes like this: if a market is gigantic, often billions of potential dollars, then getting 1% should be no problem at all, and the 1% equates into multi-millions of dollars. Not a bad deal. But markets don’t work this way, and the entrepreneur looks foolish.
I encountered this with three entrepreneurs who had invented an electronic way to hook up railroad cars. Their approach replaced the current hydraulic way of hooking up cars that required a person to manually connect a hose from one car to another. They calculated the size of the market by multiplying the cost per car times the number of railroad cars in the world, which turned out to be multiple billions of dollars. And all they needed for astronomical success was 1%. But then I started asking them questions they could not answer. Why would railroad car companies want to do this? Which companies could afford to change? How would unions react to this? What regulations would they have to address? As we talked, what became obvious is that they had not done their homework, and they began to realize that selling their product would be a lot harder than they imagined. More important, they came to understand that it would not be possible to get 1% of the worldwide market, and that they would have to focus much more sharply how they could build a competitive presences in some segment of this market.
At the other end of the spectrum is the everyone-will-buy myth. In this case, an entrepreneur argues that his or her product or service is the proverbial best-thing-since-sliced-bread breakthrough. It is so good that no one will be able to resist purchasing it. Of course, this misses the obvious truth that no product is bought by everyone. But the myth is appealing because it is easy for the entrepreneur to become so enamored by his or her product or service that he or she assumes that others will be just as enamored.
I came across an entrepreneur who was selling a barbecue sauce that his grandmother had created. He grew up eating this sauce, loved it, and thought it was the absolute best sauce anywhere. He was convinced that once anyone tried this sauce, they would find it to be an irresistible barbecue elixir. What he failed to see was the fact that there are a plethora of barbecue sauces because there are a plethora of tastes. For him to be successful, rather than assume that everyone would buy, he had to target his customers and learn to differentiate his product.
Better Mousetrap Myth.
Ralph Waldo Emerson, the great nineteenth-century American writer, has led many an entrepreneur astray with his famous phrase: “If you build a better mousetrap, the world will beat a path to your door.” The modern variation of this is, “If you build it, they will come.” They never do. This myth has resulted in many a disillusioned entrepreneur and failed company.
Entrepreneurs who sit and wait for customers to come to them wind up sitting and waiting while the world passes them by. The only entrepreneurs who succeed are those who beat a path to the world.
I worked with an entrepreneur who invented an electronic stethoscope to replace the traditional rubber acoustical stethoscope. He put a quarter page ad into the Journal of the American Medical Association highlighting the improved frequency wave of his device and assumed that the orders would come pouring in. He did not sell a single stethoscope.
He had to learn to beat a path to the market. So he learned the knot in the stomach of physicians-the fear of malpractice-and then positioned his technology as a device that improved diagnosis and thus reduced the possibility of malpractice. He gave his device to head nurses in teaching hospitals, set up beta sites, got testimonials, went to doctors conventions, and generally beat a path to his customers. Sales went up.
What To Do
Avoid the siren’s allure of these three myths. Instead, carve out a market niche and seek to dominate it. Target whom you are selling to and develop a profile of your customer. Rather than wait for customers to come to you, be aggressive in taking your product or service to the marketplace.
If you do, you’ll not only be and look smarter, but you’ll also be more successful.